Thomas Cook investors express anger at high levels of executive pay

But chairman of remuneration committee escapes shareholder vote at annual meeting, having previously agreed to step down

Small investors hit out at the Thomas Cook board during an angry shareholder meeting on Wednesday, demanding to know why former chief executive Manny Fontenla-Novoa received a payoff of £1.17m after leaving last summer in the wake of a heavy profits warning.

Peter Middleton, chairman of the board’s remuneration subcommittee, defended the move, insisting Fontenla-Novoa’s severance had been determined by a binding contract that had been backed by shareholders.

Middleton did not face a shareholder vote after making clear last month that he had “decided to retire to allow new chairman Frank Meysman more flexibility to refresh the board”. Fellow remuneration committee member Bo Lerenius and Roger Burnell have also announced plans to leave.

Fontenla-Novoa received a total pay package for 2011 of £2.26m in cash and shares, taking his total pay over less than five years to £17.2m.

It is thought the departure of key directors involved in setting Thomas Cook’s executive pay helped avert a heavy protest vote at Wednesday’s meeting. The formal count is yet to be announced, but early indications are that almost 9% of shareholders voted against pay arrangements.

Acknowledging widespread anger over the arrangements, Meysman told assembled investors in a prepared statement: “Certain aspects of executive pay in the past… have been rightly criticised by shareholders, both at previous AGMs and in the regular dialogue with institutional shareholders.”

He said he had introduced a new pay regime, with greater emphasis on deferred bonuses and with the possibility of bonus clawback in the event of later poor performance. Meysman is currently consulting with investors about new long-term incentive arrangements as he is in the final stages of recruiting a successor to Fontenla-Novoa.

Investors had long been angered by pay awards for the former Thomas Cook boss. A vote over boardroom pay in 2008 received just 4% support from independent shareholders after the award of a one-off £5m bonus to Fontenla-Novoa. The resolution was only carried because of the voting might of German group Arcandor, which then held 52% of Thomas Cook shares but slipped into bankruptcy months later.

A small shareholder who had raised objections to executive pay also criticised Thomas Cook’s decision, confirmed on Wednesday morning, to put its business in India up for sale. He said such a move was a “mistake” as India was a strong, emerging market.

The disposal is part of an urgent series of asset sales the tour operator hopes will raise £200m to help reduce its huge debts. The group is thought to have seen seasonal borrowings peak at about £1.5bn at the end of last year.

Separately, before the meeting opened, Thomas Cook issued a trading update revealing underlying losses for the last three months of 2011 had widened from £37m to £91m, hit by rising fuel costs and political uncertainty in north Africa.

Interim chief executive Sam Weihagen said that, contrary to suggestions from some rivals, sales in the UK were “broadly stable”. He said sales of traditional package summer breaks to British holidaymakers were down 9% compared with this time last year; however, the company has further reduced the number of summer holidays on offer. Its planned summer capacity had been cut by 8% eight weeks ago and is now cut by 11%. Weihagen said a review of holiday capacity was ongoing.